ASSOCIATE MEMBERSHIP

SCHEME YOUR VIS ION, OUR PERSPECT IVE

Perspective Financial Group (PFG) is a national

independent financial advisory group and one of

the top 15 UK financial advisory firms. It currently

has around 60 registered advisers, over £2.6bn of

assets under management and is highly profitable,

with profits for the year to December 2014 on

track to hit £5m. The group was established as a

consolidator and has made 31 acquisitions to date.

It is the medium term intention of the

shareholders to continue growing the business

before realising some value either by way of a

trade sale, flotation or private equity transaction

(the ‘exit event’).

WHO ARE PERSPECTIVE FINANCAL GROUP?

The Associate Membership Scheme offers

owners of businesses the opportunity to join PFG

on a very flexible basis. The benefits of the

scheme are mutual, with the main ones to the

joining firm (member) being:

■ Participation in the exit event. Because of

the critical mass of PFG this is likely to be at a

substantially higher multiple than for a

smaller firm. The benefit of this ‘arbitrage

gain’ is shared with the member.

■ Group support. As part of the scheme,

members will be provided with central

support for management accounting,

compliance and website/marketing.

■ Use of the groups Centralised Investment

Proposition, including all support and

training. This gives members the

opportunity to improve their profits and

provide clients with an enhanced service.

■ Freedom to drive the profitability of their

business.

■ No more ongoing compliance risk.

■ Full hand-holding through the process,

including new stationery, any compliance

support and management of the novation

process

WHAT IS THE ‘ASSOCIATE MEMBERSHIP SCHEME?

PFG agree to acquire the member firm. This is done

by way of a call option. This agreement gives PFG

the option to legally acquire either the shares or the

trade and assets of the member firm at some point in

the future. In reality this would be immediately prior

to the exit event and the member firm is obliged to

sell to PFG if it exercises this option. When the

option is exercised, PFG pay the owners of the

member firm a fixed multiple of 6x times their

EBITDA, underpinned by Recurring Income, of which

50% will be paid up front, 25% after one year and

25% after two years subject to an earn out. A

formula for calculating EBITDA will be pre agreed.

At the point the associate agreement is signed, the

firm novates its clients to a PFG ‘Hub’ office and

adopts PFG’s compliance regime and investment

strategy. The novation process will be managed by

PFG. The firm retains its existing trading vehicle but

de-authorises its FCA permissions, trading instead

under its same name, using a ‘trading style’ of the

PFG Hub Office. The firm will be required to retain PI

run off cover for the de-authorised vehicle. It also

retains all liability in respect of pre novation

liabilities. The Hub office will be responsible for the

management of the firm with additional resources

being provided by PFG Group functions. The

member has the option to give 12 months notice to

cancel the relationship.

At the point of exit, PFG has the right to exercise the

option and legally acquire the firm, enabling it to sell

the enlarged business to the acquirer. This critical mass

drives a higher multiple on exit than an individual small

firm would command and is the reason PFG can pay 6

times EBIT to acquire firms. It is worth noting that the

6 times multiple is applied to the EBITDA at the time

of the exit event. By being part of the PFG

organisation and benefitting from the group support

and facilities, firms have the opportunity to grow their

EBITDA faster than they could in a stand alone

environment. There is therefore a compounding

benefit of applying a higher multiple to a higher

EBITDA figure.

HOW DOES IT WORK?

The annual fee, paid monthly to PFG will be 10%

of turnover subject to a minimum of £25,000, plus

the reimbursement of actual costs incurred by the

PFG Hub Office for FCA/FOS/FSCS Fees and Levies

and PI Insurance costs as and when they arise.

The 10% fee covers Gabriel reporting,

management accounts production, regulatory

procedures (such as file checking) and website/

marketing support. In the event that a member

cancels the call option and withdraws from the

program, a notice period of 12 months fee is

payable.

The costs of due diligence at the commencement

of the deal are paid by PFG.

Legal costs will be kept to a minimum due to a

streamlined process and standard documentation.

Each party will be responsible for their own legal

costs.

WHAT ARE THE COSTS?

Why do most members do this?

The main reason is to achieve a higher final

multiple on the sale of their business, although the

level of centralised support is attractive to a

number of members, as is being a part of a bigger

Group.

Are the fees negotiable?

To make the program simple to understand and

operate most areas have been standardised.

However, in exceptional cases, for example very

large member firms, some negotiation is

possible.

Will I manage my own cash?

The income of the business stays with the

member (once the PFG fee is paid). PFG will

establish a separate trust account for revenues

to be transferred into for ease of administration.

The member remains responsible for all

remaining cash management and settling their

liabilities (e.g. PAYE, VAT etc.). Further

accounting support can be provided by PFG if

required subject to an additional fee.

Will my clients be inconvenienced?

No. The member will be able to communicate the

considerable advantages of being part of a larger

group, and in particular the Centralised

Investment Proposition to their clients.

Will there be upheaval for my staff and current

office arrangements?

No. The intention is to maintain business as usual.

However, if an opportunity exists to share existing

PFG office space for the benefit of both PFG and

the firm, these situations will be considered on a

case by case basis.

FREQUENTLY ASKED QUESTIONS

Perspective Financial Group Limited Paradigm House, Brooke Court, Wilmslow, Cheshire SK9 3ND

0845 688 1454 www.pfgl.co.uk PFGL— AMS – Sept 14